A good CIBIL score for home loan normally starts from 700 upwards. However, the closer you are to 900, the more faith the credit institution will have in your capacity to repay the home loan. With a good credit score along with fulfillment of other criteria as decided by the bank, you can get financing up to 85% of the total cost of the property.
What is a CIBIL/Credit Score?
A credit score is a three digit numeric summary of your entire credit history. The value of a credit score normally ranges between 300 to 900. Your credit score is prepared based on your credit history. This includes all secured and/or unsecured loans and any other debts that you may have or had.
You can obtain your credit report from CIBIL for a nominal fee and know your credit score before you apply for a home loan. A credit report will include the following information.
- Record of credit availed by you.
- Record of repaying loans and credit card bills.
- Late payments and/or defaults on past credit held by you.
- Loans and credit cards that you presently hold.
- Recent information about loan and credit card applications submitted by you.
Steps to follow when applying for a Home Loan
Here are a few important steps to leverage credit scores to your advantage when availing a housing loan.
- Check your CIBIL score before applyingKnow your credit score before applying for a home loan so as to ensure that your credit history and personal details are in order to avoid rejection from bank. You can purchase your credit report yourself, online at the CIBIL site, by paying a nominal amount of Rs.470.
- Stop applying repeatedly:If your credit score is lower than required and your home loan application is rejected by a particular bank, stop applying repeatedly at other banks. This will further reduce your credit score as different banks making enquiries on one person’s credit rating is viewed negatively.
- Limit your unsecured loans:Try to close or limit you unsecured loans such as personals loans and credit cards with high credit limits. This is because they are indicators of outstanding debt. Banks consider your debt to income (DTI) ratio before sanctioning a home loan. A higher debt to income ratio indicates that you are overburdened and will not be able to bear additional EMI payments.
How to improve your CIBIL score for a housing loan?
If you know your CIBIL score is not up to the mark for the housing loan schemes you wish to avail, don’t worry. It is possible, with a little financial discipline, to rebuild your credit record and improve your credit score to eventually become eligible for a housing loan.
Mentioned below are a few tips that you can follow to improve your CIBIL score.
- Make all your payments on time and pay the entire amount due. Part-payments will still be recorded as overdue in your report and late payments are not appreciated by banks.
- Don’t use your entire credit limit. Keep a check on your credit utilization and keep your outstanding balances low to get a good credit score.
- Monitor your accounts (both single and joint accounts) regularly so that no payment is missed at the end of the month either by you or the joint account holder.
- Keep a track of your credit score and history by accessing your credit information reports from time to time and rectifying errors, if any.
- Rather than having too many unsecured loans, try to maintain a balanced combination of secured and unsecured loans. It will help you improve your credit score.